Earth economics studies the economy of our planet from the perspective of an autarkic system (a “closed economy”). It ignores the constituent national and regional parts of the planet economy and focuses on the whole. The book respects the heritages of IS/LM (Keynes) and neoclassical growth (Solow) not out of economic respect but because these tools are very useful in understanding the crisis and the policy response to that crisis.

We
examine sources of biased terror perceptions. In particular, we investigate how
international experts of the IFO World Economic Survey assess the effect of
terror on the world economy and the economy of their own country. The results
show that respondents from terror stricken countries have more favorable views
on the effect of terror on the word economy (but not on their own countries).
Male respondents and those from democratic and richer countries are likewise
more optimistic.

Inflation
co-moves across countries and several papers have shown that lags of this
common inflation can help to forecast country inflation. This paper constructs
forecasts of common (or 'global') inflation using survey forecasts of country
inflation. These forecasts of global inflation have predictive power for global
inflation at a medium horizon (12 months) but not at a longer horizon. Global
inflation forecasts, and forecast errors, are correlated with survey forecasts
and errors of oil and food prices, and global GDP growth, but not financial
variables. For some countries, forecasts of global inflation improve the
accuracy of forecasting regressions that include survey forecasts of country
inflation. In-sample fit and out-of-sample forecasting exercises suggest that
forecasts of global inflation generally contain more information for
forecasting country inflation than do lags of global inflation. However, for
most countries, lagged or forecast global inflation does not improve the
accuracy of survey forecasts of country inflation. Whatever information global
inflation may include about country inflation, for most countries it seems that
survey forecasts of country inflation have historically already incorporated
that information.

Wednesday, October 12, 2016

One item for heated debate amongst economists is the so-called secular stagnation. The economics tribe seems to agree on the fact that world growth is at a lower growth trajectory and that a substantial output.
Figure 1 provides some data for Earth's per capita income in constant prices. The figure seems to support the concensus view. A simple linear trend has been added to recent data up to but not including the great recession. The drop in output due to the financial crisis and the departure from trend are evident: Earth is in a serious depression.
Figure 2, however, provides an alternative longer run perspective that questions this concensus of economists.

Fig. 2 World income per headRegression based on 1960-2007 data

In Figure 2 we use the same data (source: World Development Indicators), but extend the period of observation (1960 is earliest reported number for world per capita GDP in the WDI). Now the picture changes quite dramatically. Yes the growth rate of per capita income has slowed down, but it is still above long term trend. Clearly the consensus view is blurred by the perspective of the recent past (the decade before the Great Recession) and by the fact that the advanced economies experienced a bad time.